Lots has been said recently in the press about enterprise agreement making and the approval process by the Fair Work Commission (FWC). In short, the numbers of agreements being made is down and approval times are “long”. The graph below, recently cited in an AFR article, demonstrates a possible link between approval times slowing and a Full Bench decision involving Coles. But the numbers are turning.

It’s not the only decision at play and it’s far from the whole story.

A steady stream of Federal Court decisions has effectively set the level of scrutiny that the FWC must apply – scrutiny which puts high demands on the FWC and in-turn those seeking approvals. Delays are inevitable, particularly given the FWC works with the parties on curing approval defects where possible. In effect, the FWC often does the work of the parties to ensure the approval requirements are met. Bear in mind that there are between 3,000-5,000 agreements to approve each year. Each approval requires over 30 requirements to be met, necessitating more than simply a “tick box” to deliver on the legislative charter. To suggest that this is a simple “rubber-stamping” process is wrong. There are 43 Fair Work Commission members who are charged with this.

We recently prophesied that the numbers would turn. Recent statistics from the FWC bear this out. A legislative change late last year enabling the FWC to approve agreements in a way that overlooks “minor procedural or technical errors” is enabling faster approval times. The corollary of this is that the FWC must still identify but, can overlook, errors made by parties who file agreements that do not meet the legal requirements.

In time this will probably see many an employer becoming even more blasé about the agreement-making requirements, because the FWC can more readily come to the rescue. But with all the criticism levelled at the FWC at approval delays, its patience and willingness to work with the parties to ensure approval might be tested. In other words, will we see non-compliant agreements more readily rejected, rather than time taken to clarify certain facts or fixing application errors?

An enforceable restraint of trade can be a key business asset, giving an employer time to recover when a senior employee has left the business for a competitor. Like a good insurance policy, it’s a big relief to have it when you need it.

Australian law regarding restraints of trade has its history in 19th Century England and the prevailing concerns of that time. Of course the law has developed incrementally since then. However, by and large, an employee restraint protects certain interests within defined geographical boundaries such as a city, state or country. This made sense in a bricks and mortar world of commerce, but how can employers protect their interests in the modern digital economy?

We have worked with a range of clients to protect their interests across borders. Novel thinking is required to draft employment restraints so that they are effective within the established legal framework. Our Australian Partners have litigated hundreds of restraint of trade cases and have developed a deep understanding of the issues and what it takes to win. We share some thoughts below:

1. Ensure restraints protect the right cyber micro-markets

Cyber-markets can be broken down into many possible divisions: by country location, product or service, individual seller/retailer website, personal characteristics of the consumer (age, gender, occupation, hobbies) among other things. What this means is there are sections within any market which a departing employee may lawfully target which will not affect an employer’s current business. Say, for example, an employer operates an online gambling business for rugby and AFL which serves clients in Australian capital cities but does not offer services for online horse racing in the UK. A departing employee might be able to set up a competing website, also operating geographically from Australia, to offer online gambling in UK horse racing. The cyber micro-markets are different, so the two companies are not competing in that market. But there is room for a restraint to work in areas of overlap subject to the terms of the restraint covering the correct cyber micro-markets.

2. Confining an employer’s cyber-trade interest to its client list

Where an employer provides a range of services in a cyber micro-market, the most efficient and clear way to protect its interests – for example, the legitimate interest of client connections, may be naming particular clients in a market, along with other appropriate terms. This type of drafting can be effective to protect relationships built with particular clients situated within defined boundaries.

3. Enforcing cyber-market restraints where an employee engages in cyber-trading within the boundaries of an enforceable geographic restraint

Essentially, this means that an employer who reasonably restrains employees by geographical restraints is to be entitled to have this capture cyber-business within the geographical restraint. For example, an employer can protect its interest in client connections regarding their telemedicine counselling services provided to public and private hospitals in, say, Sydney and Melbourne against former employees providing competing services to customers in these locations for a certain period of time, but would not be entitled to restrain a former employee from providing the same services to patients in aged-care homes in Perth, Adelaide or the United States. A restraint will be effective so long as it is well drafted and ensures that providing services to clients through the internet within this geographic boundary is prohibited.

The above framework for drafting restraints supports the following public policy benefits:

ensuring a level of trade and (not unfair) competition while offering reasonable protection of an employer’s legitimate interests; and

allowing markets to grow and prosper for the benefit of consumers.

Keep enforcement front of mind where cross-border litigation is a possibility

A cyber-restraint, like the internet itself, is a global construct. But courts are country and state based and their jurisdiction is usually limited by geography. That made sense when most trade was local but can be problematic when trying to enforce a restraint across borders.

A 2017 decision of the Western Australia Supreme Court provides an example. Naiad, a U.S. employer sought an interlocutory injunction to restrain a defecting employee from operating a competing business in Western Australia. After grappling with the applicable law and jurisdiction, the Court concluded that the reasonableness of the restraint was governed by US (Connecticut) legal principles (given particular terms of the contract) but the grant of an injunction was governed by Western Australian law.

The situation is complicated because some countries (for example, Australia and the United Kingdom) have arrangements in place to recognise each other’s Court judgments and orders meaning that international litigation encounters less problems. But this is not so as between many other countries. The upshot is that it is important to consider how a restraint term will be enforced up front. Otherwise, there may be a right but no real way to achieve a remedy.

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Some data to support this follows in this blog. Both agreement numbers and employees covered by in-term agreements are in decline. Point 7 and 8 highlight the challenges faced by parties making agreements and the Fair Work Commission in processing agreement approvals.

In yesterday’s blog, we commented on the state of play in enterprise bargaining in Australia.

So what’s the outlook for enterprise bargaining in Australia? Here’s the top 7:

Collective bargaining remains unlikely to be the answer for productivity gains – as has been the case for some time. Nor will it deliver the across-the-board wages growth sought. Of course, there will be exceptions to the rule. But my observation here is one generally about the ability of the system to generate productivity gains. Of course, there are some sectors where deriving and measuring such gains is very difficult, if not illusory, in any event.

Complexity is here to stay. The rules surrounding the making of agreements, laudable in their aim in providing protections for employees, make the process and approval regime demanding on employers, and the Fair Work Commission.

The key determinant of bargaining outcomes will be power. The pendulum of “power” at the negotiating table will, to some extent, move with the market – but not completely. Over the last 10-20 years, claims have moderated as economic conditions deteriorated. We have seen, for instance, more moderate claims in Western Australia in construction as the resources tap tightened.

Large and high-profile employers will remain in union sights. They are vulnerable to aggressive campaigns and effectively set the wages for others.

Pattern-style bargaining became more prevalent by stealth. The TWU made this prophecy real just last week.

Employers who influence a worker supply-chain such as major retail will become an increasing target of “activism”. Will we see GetUp involved in this space?

Collective bargaining will continue to decline as workplaces become more fragmented and the incentive to bargain decreases. Power will dictate the incidence of enterprise bargaining.

This all assumes no, or only limited change, to the Fair Work Act.

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A consistent theme in recent years for both employers and unions is that enterprise bargaining is broken.

The genesis of enterprise bargaining in the mid 1990’s lay in its potential to generate productivity gains at a time when workplaces were strangled by terms and conditions set for whole industries and occupations, divorced from the particular needs of a workplace. At the time, enterprise bargaining presented opportunity. But this potential is all but exhausted.

Most negotiations are now centred on squeezing a wage outcome. Employers jump on the bargaining merry-go-around every three or four years to avoid protected industrial action. Thus the process for many employers is one of risk and its avoidance, rather than opportunity.

For unions, enterprise bargaining is not delivering sufficient wage growth. Unions also argue that the process can be easily stymied by employers who are alleged to “game” the system – meaning that they find ways to avoid bargaining or work around the spirit or intent of the bargaining laws. There’s another challenge for unions. Resourcing every negotiation isn’t easy. There are, after all, around 5000 agreements made each year.

The system relies on “power” based bargaining – at least in key sectors. The party with the most power prevails. Ironically, it’s large employers that are vulnerable to the power of a union to disrupt the business through the power of industrial action or some other campaign. Business decision making focuses on the short term, as agreements are reached to avoid the immediate impact of industrial action (which it needs to be acknowledged can have longer term impact). However, the long-term impact of doing the deal is often under-estimated.

The higher education sector is a great example where the union has successfully secured excellent outcomes and leap-frogged them across the sector. These outcomes include highly restrictive provisions around workplace change that rival anything on, say, the waterfront.

Collective bargaining is on the wane in the private sector with rapid declines in the numbers of agreements and employees covered. A sharp decline has occurred under the watch of the Fair Work Act despite it promoting “enterprise-level collective bargaining” as one of its seven objects. The reasons for this are varied and will be the subject of a further blog.

Tomorrow we will identify our top 7 on the outlook for enterprise bargaining in Australia.

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The debate on what is to be done about slowing wages growth of Australian workers is, understandably, receiving an increased focus in the midst of an intense election campaign.

The Labor Party has described this election as “A referendum on wages”. The Australian Council of Trade Unions, under its “Change the Rules” campaign, argues that the workplace relations system is biased in favour of employers’ who are choosing to keep wages low and taking this labour share in the form of corporate profits. The solution, we are told, is further regulation and to increase union rights and bargaining power so that unions can extract better wage deals.

This paradigm disregards significant and powerful international and Australian economic research which examines the root cause of slow wages growth, and concludes that the major factor is advances in, and reductions in the price of, increasingly sophisticated technology and the emergence of global supply chains. The material referred to does not suggest that declining union density or bargaining power have had any material impact. Misdiagnosis of this problem is very likely to result in poorly targeted solutions which will be at best ineffective and, at worst, exacerbate the problem being solved for (such as adding higher unemployment to slowing wages growth).

This wealth of research shows that slowing wages growth is not a uniquely Australian problem. It is a prevalent phenomenon across many advanced economies, irrespective of the architecture of their industrial relations system. Advances in many forms of technology have induced companies to chase productivity and efficiency by moving away from labour and toward capital with the effect that the labour share of income has steadily declined. The effects on workers have been most pronounced in advanced economies where labour costs are highest. The historically low interest rate environment (reducing the cost of investment) has played its part. Businesses of all shapes and sizes must continually make these choices if they are to succeed in a hyper competitive global market.

To take a snapshot of the available learning: in 2013, two University of Chicago Booth School of Business economists, in a paper published by Oxford University Press, concluded that the global labour share of income has declined consistently and by at least 50% since the 1980’s in the large majority of countries and industries. In 2017 the International Monetary Fund examined the problem in its World Economic Outlook, noting that in advanced economies wage growth had flatlined. Closer to home, in November 2017 the Australian Treasury in its “Analysis of Wage Growth” reached similar conclusions and noted that “the relative price of investment to wages has fallen over time due to large falls in the price of machinery and equipment and computer software”. In 2018 an OECD report concluded that across 24 OECD countries, real median wage stagnation has occurred concurrently with a decoupling in productivity growth (which has also slowed) mainly due to technological progress and the expansion of global value chains. Finally, last month the RBA in its paper “Is declining union membership contributing to low wages growth” concluded that the declining trends in unionisation rates are unlikely to have materially contributed to the decline in wages growth.

So if slowing wages growth is a global, macro, advanced economy problem, what is the solution? The answer inevitably will be multi-faceted and context driven. Ensuring Government policy incentivises investment in knowledge based capital is a common recommendation in the research. Bringing Australian workers as high up the skills value chain as possible is paramount. Constant innovation; supporting growth industries and training or re-training employees to work in them; stronger partnerships between Universities and business, will all form part of the mosaic. We could do worse than consider the recommendations of brilliant Philanthropist and self-made billionaire Ray Dalio, who clearly cares deeply about these issues.

Artificially lifting wages or increasing labour market regulation and union power will not work, at least beyond the short term sugar hit. As concluded in a 2017 OECD Economic Survey:

“Ensuring competitive and flexible product and labour service markets is particularly important in Australia. The country’s geography separates markets, compromising competition for goods, services and labour. Whilst Australia’s regulatory and policy frameworks are already relatively flexible and supportive, further improvement would enhance the economy’s ability to absorb innovation and increase the share of businesses operating at the frontiers of technology and best practice”.

Ultimately, ensuring Australian companies have every chance to compete and succeed, buttressed by Government and business support, gives us our best chance of ensuring that Australia’s workers receive the high wages they deserve, and minimising the dislocation that can unfortunately occur in a rapidly changing global economy. Solution myopia in the face of new global problems will not serve us. It will set us back by distracting us from what really needs to be done to prepare for and thrive in a different world.

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Our clients care deeply about innovation and technology. We know this from our engagement with clients including discussions triggered by reflecting on the findings of the CSIRO’s Workplace Safety Futures report.

Our clients care about “machines” (including “robots”, artificial intelligence, biometrics and the harnessing of big data) being developed as a result of innovation and technology because of the unprecedented efficiencies and improvements in safety they unlock.

These benefits come with a potentially profound human cost. Depending on which research you turn to, the predictions are that between 9 and 50 per cent of jobs will be replaced by machines in the next decade.

This rapid pace of change has caused leading scholars to argue that some, if not a large majority of humans face a fate worse than redundancy: complete irrelevance.

The jobs of the future will involve “caring” and other “soft” skills machines can’t replicate

This sobering thought caused us to reflect on what the skills of the future should be to counter this impending irrelevance. The current thinking from some quarters (including most Governments in the Western world) is that science, technology, engineering and mathematics are the subjects of the “future” and that we should be teaching more students these subjects in our schools, technical colleges and universities.

Cybersecurity and understanding the potential vulnerabilities of machines and how to fix them is one growth area. Estimates are a near 40 per cent uplift in the number of people needed with these skills in the next decade.

At the same time, leaders of businesses are arguing that one of the hardest skills to recruit for is the ability of candidates to write and speak publicly to communicate ideas clearly. Chairman and CEO of Goldman Sachs, David Solomon, has said that “[h]ow you communicate with other people, how you interact with other people, how you express yourself will have a huge impact on your success”.

The bigger question though is how we, as a society, prepare for the future?

Embedded in this question are further intrinsic questions around what it is that machines cannot do, or what it is that machines cannot do better than humans? An understanding of the answers to these questions is necessary if we attempt to protect ourselves from redundancy and, worse still, irrelevance.

It’s heartening to hear that across all reports that communication skills remain valuable in the “new world” of work. This is good news for lawyers and many professions.

Knowledge of machines + deep understanding of people = recipe to thrive

Perhaps the focus here should be on the things that, for now at least, machines can’t replace. In the main these are the very things that make us human and make us feel. This includes the joy we experience through art, literature, movies, theatre, dance or music. It also includes the empathy we feel that comes from human care and kindness.

Leading organisation are already harnessing “blended” skill sets

Leading organisations with which we work have already recognised the need to combine a knowledge of machines with the “caring” and “feeling” skills, so called “softer” skills, that machines can’t replicate. These organisations seek out and promote, through lifelong learning, essential skills in communication, creativity, innovation and intercultural competency.

The future is impossible to predict with accuracy. One thing though is clear – the impact of machines on the jobs we have today is inevitable. If we set ourselves on a path to learn only the skills which machines can potentially replace, we set ourselves on a dangerous path.

Based on the inevitability of the machines replacing humans, combined with the focus on the “softer” skills associated with creativity, we are working with our clients to do just that get more creative.

Creativity is not only one of the key skills that will relate to employability in ever increasing ways but we are seeing employees seek out organisations that hold creativity as a core value. Why? They will be sustainable long term. We might care about machines, but as yet they don’t care about us.

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It is widely proclaimed that we are in the midst of the “Fourth Industrial Revolution” (4IR). The leaps and bounds that are being made daily in information technology and biotechnology signal the end of homo sapiens or provide liberating freedom for the working masses, depending on which commentator’s view you believe.

For us, the daily lived experience of the 4IR in working and home life is not yet as cataclysmic nor as emancipating as the commentators proclaim. However, the ever growing use of technological, timesaving solutions, the ‘gigification’ of the workforce, the blurring of the lines between work and home and the rising issue of workplace psychological health all signal shifting global trends.

Regional trends that are responding to the 4IR

The 4IR is shaping workplace laws. Working across regions we see examples that point to trends in laws responding to the new world of work arrangements such as non-traditional labour models. As an example, recent amendments to the Occupational Safety and Health Act in Korea have expanded the scope of statutory protections to “persons providing labour” (as opposed to “employees”) and introduce an obligation on franchisors to take preventive measures for workplace accidents suffered by franchisees and their workers.

Positive regional trends can be seen in how workers are protected by existing laws. The latest amendment to the Law of the People’s Republic of China on the Prevention and Control of Occupational Diseases on 4 November 2017 and recent cases indicate a trend in Beijing and Shanghai that the enforcement of health and safety at work is in focus, more comprehensive and increasingly strict.

Debates on how we face the future

Australian Governments are grappling with the challenge of laws that are responsive to the 4IR. A key recommendation from the 2018 review of the model Work Health and Safety Laws is that Safe Work Australia develop criteria to continuously assess new and emerging business models, industries and hazards to identify if there is a need for legislative change, new model WHS Regulations or model Codes.

Laws continue to be tested against the explosion in reporting of workplace sexual harassment. A number of unions are calling for WHS laws to specifically include sexual harassment as a risk that must be eliminated or minimised by duty holders. Regulators are encouraging anonymous whistleblowing to facilitate investigation.

The battle lines have also been drawn for the Federal election later in the year, with the Australian Labor Party committing to a wide suite of industrial and safety changes including a commitment to support national industrial manslaughter laws – a position supported by the 2018 review of the model laws.

In Victoria, recent presentations from WorkSafe have detailed plans for its inspectors to be trained to assess workplace psychological health. We can expect more enforcement action in this space.

Exploring ‘megatrends’ for the future will help us prepare for change

It is more important than ever to understand the risks associated with the constant change in workplaces. The Workplace Safety Futures report commissioned by Safe Work Australia explores the six megatrends predicted to re-shape workplace health and safety – including the gig economy, the blurred lines of work and home life and workplace psychological health. It’s a highly recommended read.

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We are excited to announce that Erin Hawthorne has been promoted to partner. Although we have grown through lateral partner appointments over the past few years, Erin is the first promotion to partner from within the team since the Australian offices of Seyfarth Shaw opened in Australia.

“Erin has been a leader in our team since Seyfarth opened doors in Australia, and her promotion to partner recognises this”, said Australia Managing Partner, Darren Perry. “An experienced employment and industrial relations lawyer with in-house experience, Erin is known for her ability to provide clients with advice through a lens of practicality”.

As an experienced litigator, Erin is adept at using the opportunities presented by difficult employment and industrial relations issues to deliver commercial outcomes when representing employers. Erin has the game plan needed to protect or attack when litigation is unavoidable or advantageous.

As the first promotion from within the team at Seyfarth Shaw in Australia, Darren explained that “the team sees this as a milestone moment in the growth and development of our firm” marking the moment when “one of our talented lawyers has been promoted into Seyfarth’s partnership”.

“We recently celebrated our fifth anniversary in Australia. Since opening, our team has established itself as a market leading labour and employment and workplace health and safety practice. The promotion of Erin is part of our strategy to continue the growth of the practice and take it to the next level.”

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On 12 December 2013 Seyfarth Shaw announced our Australian offices were officially open for business. Today marks five years since those doors opened.

What better way to reflect than to ask ourselves, what have been the biggest changes in our specialist areas of law over those five years?

“It has become increasingly difficult to make enterprise agreements that are compliant, genuinely enterprise-focused and fit for purpose due to increasing modern award complexity combined with the unworkable approach adopted in decisions of the Fair Work Commission and Federal Court to the BOOT and other procedural aspects of agreement making.”– Rachel Bernasconi

“Over the past five years, I have observed the tension between sharing improved safety lessons and legal risk. I am concerned about compounding this potential unintended consequence with the rise of the industrial manslaughter offence.”
– Paul Cutrone

“I think the biggest development in employment and industrial law is how courts and tribunals are grappling with modern expectations of what ‘working’ looks like. This means they are looking at how to deal with the gig economy, flexible working arrangements (including working from home and telecommuting), employees wanting lengthy periods away from work and ‘portfolio’ careers. There is a real tension as employers seek flexibility to ensure customer demands are met while balancing the costs of labour vs employee representative groups seeking to pull the other way, seeking automatic casual conversion rights and laws that treat gig workers as employees. The next five years will see this tension play out in the policy debate.”– Ben Dudley

“The most significant change I have seen is increasing employee mobility. Employees of large international organisations are spending more time on assignment in locations throughout the Asia Pacific, on both a short-term and long-term basis. We see this occurring as a result of organisations expanding their operations throughout the region. Employers are increasingly seeking specialist employment advice on both a single jurisdiction and multi-jurisdiction basis, including to confirm compliance with new frameworks and to ensure the appropriate arrangements are in place.”– Luke Edwards

“The last five years has cemented a realisation that has been brewing for the last ten years. Enterprise bargaining amidst the current regulatory environment has reached its use-by date for many employers. Enterprise bargaining is no longer an opportunity to secure win-win outcomes but rather a process aimed at reducing the risk to on-going operations.”– Chris Gardner

“There has been a shift away from spending money on large, wordy paper systems written by lawyers. I question whether anyone is any safer once they are developed. Smart organisations are investing heavily in understanding their key risks, controls and testing the effectiveness of those controls. This is where their efforts need to be.”– Jane Hall

“One of the most significant developments I have seen in the last five years is the rise in the influence of workplace regulators. Consistent with the overall dynamic facing corporate Australia, we are seeing far more active, better resourced and assertive regulators across various workplace issues. The environment is one of heightened focus on compliance with workplace and safety laws; the financial and reputational stakes are higher than ever for employers who fall short.”– Darren Perry

“Over the past 5 years, we have seen a number of areas where our Fair Work Commission cannot speak with one voice. While many parts of its jurisdiction have been affected, it is most noticeable in individual claims. How the Fair Work Commission balances even very serious conduct against mitigating factors remains unpredictable and has resulted in flip-flopping which creates ongoing uncertainty. This is costly and time consuming. Faced with cost and uncertainty we are seeing our clients feel pressure to settle rather than defend a sound and rational decision to uphold reasonable standards of conduct. The absence of clear statements of principle from the Fair Work Commission (such as we had in the past) and its increasingly subjective approach creates uncertainty, inefficiency and unfairness of a different kind.”– Henry Skene

“The changes have been many and varied. What I am seeing is increased competition across a number of industry sectors, which means there is a war to retain and protect the most talented staff, who are the engine of the business. This has led to a big uptick in restraint of trade work – a highly specialised area which can be compared to a game of chess. We are passionate about this area of law and have built a specialist service model that in our opinion is market leading – whether it be getting into court within a matter of days when necessary, to defending applications for injunctions or damages. Our clients recognise that a good restraint is a business asset, and invest accordingly.”– Michael Tamvakologos

On behalf of the team, we would like to thank the truly valued supporters of Seyfarth Shaw in Australia. We are excited to continue to work with you into 2019, and beyond.

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